Inflation volatility and inflation in the wake of the great recession

Abstract

A reduced-form investigation reveals that the relationship between the level of inflation and its volatility in the USA may not have been monotonic. This paper quantifies a reversal of the relationship by considering linear and nonlinear estimation methodologies on the trend and volatility of inflation. Our findings suggest that the spikes in inflation volatility in the period after 2008 are related to transitory, rather than permanent movements in inflation, suggesting that the US Great Moderation period may be merely on hold, rather than over with.